Hypothetical question - pay of mortgage or not

kazd

My husband and I are disagreeing on whether or not to pay off the mortgage.

We have enough money in savings to clear our mortgage. Currently we have or had the full amount in premium bonds (limit has now increased) which whilst the mortgage rate is low I am happy to leave in situ. We also have a lump in savings offsetting against our mortgage. We have been overpaying our mortgage to the point that at the current rate we will have cleared our mortgage 8 years early. We can improve this by bringing all the savings over and being mortgage neutral, keep our savings in place and keep overpaying which means we will clear our mortgage in 5 years rather than 6. All this time we will still have our lumps sum sitting there.

My husband is playing devils advocate and suggesting we clear the mortgage and then start saving the monthly amount but I don't think with all the will in the world we would ever have that amount in savings again.

Point to remember is that the mortgage won't cost us anything as we offset. The rate we pay interest at is 2.39% and to get that return in a savings account we would need a rate of approx 3% if you take tax on interest into account.

We are also still increasing our savings each month.

Interested in your thoughts and views. Hope I have posted in the right area. Many thanks

Jonbvn

The premium bonds compare very badly against your mortgage interest. The nominal return on pb's is 1.5%, which based on some detailed analysis undertaken by Martin is in effect much lower for the majority of holders.

Given the above, I would suggest you move the money in your pb's into your offset account NOW!

I tend to agree that you will struggle to get a better return than your mortgage interest, unless you are prepared to take on some risk in the form of stocks & shares.

nuzik

Id pay off the mortgage. No brainer for me takes away the biggest debt and means you could potentially save more each month in the future and if rates go up you will be quids in.

Thrugelmir

Personally I'd clear the mortgage. Then use the released the cash to invest in a range of investments. From cash to premium bonds, ISA's and pension provision.

anselld

I would move all the PBs into the offset account, but keep the offset facility in place.
Only save outside the offset if you can get 3% or better, e.g. regular savers, Club Lloyds, etc.

amnblog

You could keep it is or pay it off and there are a number of ways to work the maths. I suspect the maths and logic won't convince either of you.

You husband clearly feels better about the idea of no mortgage, and you clearly feel better about having more cash to hand.

You should explore the root of your feelings and agree the best way for you both to be comfortable.

kazd

Just come back to this post. Nuzik, we will be mortgage neutral so if the interest do go up it will make no odds to us. At the moment we pay about £80 a month in interest and on average we get approx £25-30 per month in winnings on the premium bonds. At the moment we have left the premium bonds in place and are increasing our savings on a monthly basis. We expect to be mortgage neutral in approx 18 months unless the interest rates do rise then we would bring the premium bond money into the offset.

amnblog

8 months on suggests you have no real issue with the current situation.

dimbo61

Well done so far BUT you need to look at the big picture.
We also have an offset mortgage and have worked hard at building up savings and overpaying each month.
You need to look at your ages, pensions, savings etc
No point clearing the mortgage and then having more money spare each month than you can invest TAX FREE.
The recent large increase in ISA allowances means you need over £30,000 a year but how are your pensions doing ( 20/40% extra from TAX break)